Market review

• On the back of fresh record high in Dow, subsiding fears over U.K. political turmoil with the imminent appointment of a new PM, possible interest rate cut from the BOE tonight, hopes of more fiscal and monetary stimulus in Japan and a possible delayed rate hike from the Fed, the MSCI Asia Pacific Index rose for a 3rd straight sessions to end 0.88% higher at 132.9 (+6.1% from Brexit low).

• Tracking higher regional markets and a surprise 0.25% OPR cut by BNM (the 1st in 7 years), KLCI soared 6.4 pts to 1660.4, recording its 3rd consecutive gains. Trading volume and value jumped 6.5% and 48% to 1.71bn shares worth RM2.37bn, respectively. Market breadth was positive with 523 gainers as compared to 280 losers.

• Despite broad based profit taking (as the index already rallied over 7% from Brexit low) and energy producers led losses after WTI sank 3.8% to US$45/barrel (due to unexpected increase in fuel stockpiles), the Dow still managed to eke out a 24-pt gain to set another all-time high closing to 18372, notching a four-day winning streak. Overall, the market may stall at these levels waiting for validation" that earnings will be positive. Key results scheduled for the rest of the week are BlackRock, JPMorgan Chase, Citigroup and Wells Fargo.

Technical Insights

• Poised to test 200-d SMA soon

• The positive close above 1657 (last week’s hi gh and OPR cut and 38.2% FR) resistance should bode well for KLCI to test 1666 (200-d SMA) and 1671 (50% FR) levels today, as RSI and MACD are ticking up. Nevertheless, the recent rally from 1611 (B rexit’s low) coul d face stiff resistances slated at 1684 (61.8% FR) and 1700 territory, reflected by toppish slow stochastics.

Market Strategy

• Riding high on easing fears of brutal 'Brexit' fallout and the prospect of central banks and governments stepping up fiscal and stimulus measures to support slowing global economy coupled with unexpected BNM monetary easing and expectations of more mega project roll-outs by Government in the near term, KLCI is expected to trend higher towards immediate resistances at 1666-1671 soon.

• However, we still expect global markets to remain choppy as profit taking may emerge after recent sharp relief rallies (without material changes in fundamentals). Meanwhile, potential rise in regional geopolitical tensions cannot be discounted after an international court rebuked Chi na’s claims over the South China Sea territory.

• Stock on radar (please refer separate Trading idea reports today). We see further appreciation in share prices for both SUNWAY (potential downtrend line breakout) and KUB (further advance after bullish flag breakout).

Source: Hong Leong Investment Bank Research - 14 Jul 2016